$160B Market Cap, $5.48B Revenue, $10M EBITDA Per Head: Inside AppLovin’s Profit Engine

A lot of the things that we've been able to accomplish just don't make sense to people. And in a world where things don't make sense, people think you're cheating.

The founder mentality has got to be chase winning.

In order for me to get paid anything, the stock had to clear that and then keep going up from there.

Almost in every relationship of my life, I was never really present.

That fear of blowup is one of my big motivators.

Yeah, I like it. I try to go unscripted, so I can't say I reviewed them, but it was a lot of questions.

I think you almost if you've had success, you almost have to be inspired by winning. If you're fearful of losing or you have a fear of failure, I feel like you're almost certain to be stuck. You're not going to take shots that are material and you're going to protect downside more than go after upside. And I don't tend to believe that's really the founder mentality. If you took a risk once upon a time to start a business where there was nothing, you didn't even know what it was going to become and you knew the odds were 99.99% likely that you were going to fail. That in itself has to tell you the founder mentality's got to be chase winning. And so over the years I've taken motivation through winning. And I think it's also important to note that founders don't tend to be motivated by money as well if they're really successful. That's something that I like to ask in interview questions and I found the best people are motivated by personal growth, development, in being inspired, finding things intellectually stimulating, winning, but it never tends to be money because money is a very very tough thing to continuously be motivated by. Eventually you will reach a point where money is no longer a motivator and then you need to find something else. So, I've always pushed to win and I've always pushed to learn and grow and those are the things that really got me going.

There was a baseline that I needed to feel like family was good and I was fortunate enough to start a couple businesses before they were successful. So, I'd reached the baseline before I started this business. And I said those businesses, I really aspired to get a single. I just wanted to get enough money where I didn't have to stress about money. Once I co-founded this business with my team and we started getting going, I never really needed anything from this monetarily. And so the interesting piece there is when as we were building up, we were growing really quickly. And in 2015, we got approached to sell the business for quite a lot of money in the hundreds of millions of dollars all cash. Had I not had the singles before, it might have been something that was very enticing to just cash out the whole thing at that point in time. But because I knew my bank account was sound, I wasn't in it for money. I was trying to build big and really I felt like this had to be the home run. I was able to think about the deal process there logically and understand that the business is growing really well. It's really sound. Why would we give it up on that upward trajectory? So, we were able to really play long and I think in large part that's because I didn't start this at all considering the money that I can make from it.

Yeah. So, to understand my comp in '23, you got to really look backwards in '22. We when we went public, we went public in '21. In the first year, the stock went up to about $40 billion market cap. In 2022, we fell about 92% to a little bit under $4 billion market cap. I for the life of the company had only taken equity that was my founder stock and based on the money that I originally put in the company. So I'd taken no compensation. I was taking basically the bare minimum to have benefits. At the bottom in '22, I made a decision and that was for the first time to ask for compensation. And the reason I did that is because I felt like I'm public. Turning this company around is a big task. And I'd like to align myself with investors to say I'm going to get paid, but I'm only going to get paid if the stock recovers. So the thresholds of compensation that the comp committee on the board granted me were at a minimum the stock was $9. We had to get to the first threshold I think was about $38 to $40. And in order for me to get paid anything, the stock had to clear that and then keep going up from there for me to get any sort of compensation. And then there were I think five or six levels from there. So all the way up to a return to $80, which was our IPO price and I had a term to go achieve it.

I feel like CEOs who are founders originally started a business taking really big risk. If the belief is that the CEO should then never get compensation ever again, it's completely flawed logic. You want to give people who chase really big upside by creating really big things the potential to continuously have that really big upside because it allows them to in a way just mentally stay motivated on what they're doing versus start drifting to other things. Because any founder, even at the low point, I was worth quite a bit of money on paper at least with my equity. I could have walked away and started something else. I've now had three successful businesses, so I believe I could have a fourth, but I really wanted to stay committed to the company and stay aligned with investors.

I think the other thing that people miss is that the CEO's job in a company, especially one that's gone from small to very, very large, is an incredibly lonely, very stressful role. And if you talk to CEOs and founders, I know you do fairly often, these jobs are brutal. It's people these days are afraid to talk to me because I'm so busy. They perceive even though I'm not. I'm the same person I was 10 years ago. They don't come up to me anymore. Or people on inside the company or outside the company, if the stock is doing well, believe you're smarter than you are. And if the stock is doing poorly, believe you're going to be so stressed out you might jump off a building. Like you don't understand like the things that are going on in the CEO's mind when you really haven't done that role yourself. And very few people in the world have built a business from small to very very large and eventually taken it public. So I say that to say it's a brutal job. It's lonely. It's stressful. You almost certainly are going to have distraction from personal life. I don't know many founders who have had that kind of success that have fantastic personal lives. Yet you end up distracted from your kids because you're always focused on work. It consumes you. And therefore to then say the CEO should take less pay is something that's quite unjust because it's not understanding of the role that the CEO has to absorb.

I would say at the low low point in '22 I decided to make some changes because I did question the sacrifice I was making. There were two tolls that I saw that were being taken on my life. One was my health was decaying and I felt like if I'm this stressed out where I'm not sleeping, I'm drinking eight cups of coffee a day. I'm losing my hair, losing my fitness, just losing the things that allow me to focus. If I don't reverse that, I'm never going to be in a place to be mentally sound to run the business. And I felt like as a CEO of a public company, I'm committing for the next 10, 20 years. I need to be here a long time. To do that, I needed my health. So, I stopped what I was doing and reset that. The other piece was I felt like from my children, I drifted a little bit more distant because I wasn't paying attention to them. And I think any founder or anyone who works at a tech company that's always on knows this experience if they have kids. You hang out with your kids, but your mind is elsewhere. Either that or you're on your phone. And so, you're never really present. And what I realized is like almost in every relationship in my life, I was never really present. And so, what I tried to do to change that is at least take small moments to feel like I was present. And so, small moments might be 10 minutes at a time because I'm not going to be able to sit down and have hours at a time. But if I gave myself 10 minutes at a time to hang out with one of my children or a couple of my children, I felt like, okay, now I'm actually committing to them to be 100% present. And that was a change. And the third change I made at the point in time was that I started introducing hobbies to myself. So for example, I started learning how to surf in the last year or two years. You have to put the phone down. You have to be completely disconnected. You get mental ease. And in the absence of these changes, I feel like I would have felt like I'm giving away a big part of my own ability to be stable and happy. And by getting that back, I became a better CEO of the business. I became someone who could be more thoughtful and who could be more long-term focused.

I mean like to fall 92% in a year you go down almost every single day of the year. So and I think most

Yeah it's a lot. And then also like when you realize you fall 92% you got to go up 10x to get back to where you started. So it's like it is a bloodbath. A couple things like one is a lot of people think your psyche is tied to the stock and I mean beyond that when you talk to some execs who are at public companies they'll say they don't look at the stock price. It is I can say I 100% look at the stock price. Like it is very very hard to run a public company and say I'm just going to choose not to look at the stock price for a few days, week, whatever because you've got investors that care. You got your team that cares and it's a real-time ticker on what the world thinks of your business. The challenges there are when everyone is telling you that the stock is going down every single day, investors are not buying your shares. It's very easy to go, am I doing something wrong? Is the business fucked? Is something here that I don't understand that everyone else in the world is smarter than me on and understands? And so it can make you lose confidence and second guess yourself. In the face of that, I think what's important is if you believe in your business, maintaining conviction. And so we did a couple things and really that allowed us to turn the business around.

As an advertising business, there's an advertising model that drives a lot of the success that we have on platform. Everything we do is on a performance basis. So advertisers plug in, they aim to get a certain amount of revenue that's more than the ad dollars that they spend on the platform. Now what delivers that equation for them is how potent our advertising model is. And these models are recommendation system models and that's one of the earlier forms of machine learning that existed and it's really gotten supercharged with what we see today in AI and the research advancements in LLMs. Well, in '22 at the very bottom we said we're on an older version of machine learning. We're going to completely throw out our technology, rebuild it, and go to what is really cutting edge and current in the field of recommendation systems. To do that was a big internal change. One, we had to slow down basically all research and development on the current system because we said we're going to throw it out. It's now outdated. It's not going to carry us forward where we got to go. We had to turn over some people. We had to take some of the people that had helped us get to that point, which again was a $30 billion IPO and up from there and then cratered. But a big business, we had to turn over some people who were committed to the old system and just say the old system's done. We're rebuilding to something new. And then we had to have conviction behind that bet and rally everyone at the company that this is the right thing to do and we're going to go execute on it and win. And so when you do that,

To check that you're doing okay.

And like I wasn't giving off those vibes because like at least I didn't think so. Because I've always had a belief that so long as we have conviction on a path and we've got a strategy that sounds right and we've got a motivated team behind it, we're good to go. And so I was able to voice confidence internally. In doing so, we were able to retain core team and the important people that we needed to go execute on this path forward. And that's really the challenge you get into when the stock falls that much. It's really really hard to understand how can you retain people is people are working and seeing the exact same thing that we're talking about and they're probably and their families are probably going is this company a piece of shit? Why aren't investors buying the shares? Well, it's easy to get tricked into believing it is when it goes down 92%.

Yeah. I mean, look, I think it's the latter today because the former is still yet to take full effect at most companies. But a couple years ago, we grew I've been growing really fast ever since we launched this Model Axon 2 in April of 2023 and the stock recovered. But I think it was in '24, '25 but mostly in '24 we had a year where we probably grew near triple digits but we ended up cutting the team's staff by 40-50% in most departments and the reason I did that then is a belief that if the role was going to get automated or that AI was not being adopted fast enough in those departments it's time to let those people go and rebuild the organization as if we were building it knowing what technologies were available to us today. And

Yeah.

Yeah. I mean it's like first of all like a lot of one you end up over time companies get bloated. So I said like what are the process-oriented organizations like what is created even in our company we run really lean. We've got a really high revenue per employee in EBITDA per employee but even at that time we'd gotten bloated over a decade plus and so I looked at first like what are the process enabling parts of the organization so one was HR. HR as a function was necessary to have because you've got to be able to do things like hire people and fire people but our team had gotten bloated and there was a lot of process that the HR team was introducing in the organization. As a founder I still remember the days we were 10, 20, 50, 100 people and you didn't have that much process. You had one HR person per 1 to 200 people and things felt faster. So I wanted to get back to that point and so I went through and said what are the processes I don't like at the company? Let me just eliminate those. Then we can go through and say like who are the gatekeepers of those processes? You can remove those people and then you go to the where are the areas that you're going to start seeing a lot more automation. So an example in our business is creative production. We felt like AI is going to get to the point where creatives are going to be automatically produced. You still need humans to innovate, but you can have less humans because a lot of the design work can be handed off. In engineering, your best engineers can use these tools to really accelerate themselves and your weaker engineers might not understand how to use these tools or might only get a 2x instead of a 10x or 100x increase in output. So,

So, your earlier question about winning ties in here is I don't play in fear of failure or fear of losing. And I also believe on my team across the board, our job for them has to be the right job for them at this moment and right defined by the best place to have personal development and growth. And if we believe that every single person has a good role, if we think that's no longer true, we should part ways, good severance, and make sure they're free to go do something else because I don't like to keep people in roles that are going towards a dead end. Now, it was a bet and a belief that these technologies were going to get good enough to automate these roles away, but we didn't want to take the risk that we were going to keep people in dead-end roles. That just creates morale hit that creates this organization that ends up optimizing to people who are just not happy. And we try to optimize to our best performers. Best performers, your A players want free reign to just go crush it. But they don't want to be distracted by unhappiness. They don't want to be distracted by people who are working at a role that is almost certainly going to get automated away. And so by taking it and saying build the culture as if we were building it today knowing what technologies are available to us, what would we look like? We just went to what we would look like and then that forcing function made us have to get to an automated place faster and we it would have been a lot slower had we had people that were trying to fight adoption of the technologies because they were fearful it was going to lead to their job loss.

So our core business so we bought a couple businesses. We have Adjust is an analytics company and Wurl is a CTV business. So those two aren't integrated. They run their own business. So if I just went to the core business, our core advertising products are about 400 people. So call it some very very high percentage of all the company's EBITDA comes from the core business. So if you then calculate the EBITDA per employee over 400, it's a really really high number. I think it's reaching or over $10 million a head now. And so the question on can you have a team full of A players? Not everyone can be an A player in a team. You need some roles that are just there to be processed and keep the lights on. Like we're a public company, so there's certain things that have to happen just because they have to happen. But like HR for example, like I touched on earlier, we went and took a pretty large HR organization, one that I think had 70-80 people on it and now might have 15. The people that we retained are your A players in HR. They're the doers who are individual contributors. They just get stuff done. They don't get bogged down in process. And so every organization we said, how do we slim down to the best people? And for us, the best people are defined by those that really want to come in and make a difference and learn and develop themselves, but not need process to get there. No management layer, no slowdown. It's just people who just want to get shit done. And so that went through the entire organization where we leaned up to just those kinds of people. And then you start looking around the room and you've got great people everywhere. Then you enjoy working at that company. And so A players, what I've learned, can exist whether it is a back office role or an engineering role or a front lines revenue generating role, but A players won't exist in bulk if you have a bunch of B's, C's, and D's around them.

I mean, so long as I have all people who are doers who are really high output, I don't dislike any role because it fits our culture and every part of that comes together to build the business. But it's like as an example, if you look at our exec team, we have CEO, CTO, CFO, and general counsel. We don't have a CRO, we don't have a COO. Go down the list of other C levels that people might have. We don't have a CMO. We don't have a chief people officer. We don't have any of these roles.

None of these people.

No. What's the point?

I mean, look like so the

Yeah. Yeah. They manage the next person then the next person to the next person to eventually the doer. But the reason I state this is because we really built a culture of doers. And it is very very hard when you grow up to go from a team you started and was small and was a team of doers to eventually get large and you go public. It's very hard to maintain that. We didn't until we ran through the layoffs and started leaning up. And really the catalyst for me was this guy who's now the CTO, Giovani, came in and he started looking around the organization and kept saying why do we have these people why do we have these processes and it reminded me that the most important question to ask in business is why and so he's inspired me to go you know it's been 10 years we're working with all these people we have all these processes that we built over 10 years why do we have these things why is it that I have this person who has this title who means nothing. And I went through the whole organization. We just went back to the founding roots and tried to go back to that culture of doers. And the question why played a huge role in that and we were able to get to a place where everything was leaned up to doers. So we no longer have a role or a layer that I don't appreciate.

I think it's really really hard if the train leaves the station and your team becomes bloated to go backwards. And the reason I say that and this is a challenge in software today is it's not as simple as go lay off 50%, 60% of people. If the team is bloated and there's a mixture of A's, B's and C's, your A's are probably already long gone and what's left is like A minuses to B pluses and then go down from there. But it's people who like working in a process-oriented bigger company that are sticking around. If you go fire 50% of people and the culture and the team is mediocre, you're left with half mediocrity and you're not going to get to where we hopefully are at, which is just a bunch of A players who are doers. The only way to fix a culture like that is to go and fire 99% of people and just rebuild it from the ground up. It's exceptionally hard to do. Not a lot of people understand how to do that because they don't know what they're looking for. And it's very, very hard to do that as a public company. So, I think it's challenging. People hear that this is the way to build things and founders remember the days the glory days of 50 people in a room just building stuff and things moving incredibly quickly. It's not particularly easy to take a company that's gotten large scale with a bunch of layers, big exec suite and then take it back down.

I think if they really know what they're doing and they understand how the company looked when it was highly efficient when it was founded, then it's plausible that it can get back to the roots. But if it's a company that's gotten bloated to the point of mediocrity and it's just let's fire half and try to automate roles, it's probably not going to get to the place that people think it should.

So we've given roughly the same amount of stock every year in terms of absolute amount. And it's roughly $300 million. And so if you think about our market cap, I think our market cap's about $150 billion. Our burn on stock-based comp is very very low. And so you can judge us on cash flow minus SBC, which I generally think is the right way to judge companies. What's happened in tech though is that there's been an expectation that stock-based comp will be high at companies. And as stock prices have gone down, especially in software companies of late, you have a downward spiral that's formed where all of a sudden a company is burning 3% of their cap table every single year to pay out equity to the team falls 66% and now you're at 10%. And you're at a level of dilution that it's incredibly hard to come out from underneath. And so it makes it a hard to bet on those companies when they're burning that much equity. What I found and what we did implement in '22 when we fell a lot is that certain people have enough compensation to not take risk on the stock if the stock's going to be volatile. And we used to believe that every single person should have equity granted by the company. Instead, we went to a place where we said the top 10 to 15% of the company will get equity and the rest won't. They'll have the right to buy equity and there's ESPP programs that let employees buy equity at a discount if they so choose. Otherwise, they'll just be paid on cash. And I remember when I first started my career, I couldn't have taken risk. Like I was basically going paycheck to paycheck, right? Like if you got 25% of your pay in stock and it went up, great. You feel great. But if it falls 92%, you're like, damn, I can't pay my rent. That's a real problem, right? So we took it to a point where people who had the luxury of being able to take upside got upside. Everyone else got cash comp. They had the decision themselves and we controlled this burn. And so we got into the position where it just wasn't burdensome to our business. And I think companies tend to give away their stock too cheaply and too broadly not understanding who actually can drive the value of the equity and also believing that the investors are going to be accepting of really high burn rates.

I mean I think cash is king. It's simple. I mean I look at accounting practices and I look at like EBITDA numbers and like what's clean EBITDA versus not. End of the day like net income, cash, these are clean things. If a company generates a billion dollars of cash but gives out a billion dollars of equity and says I'm just going to buy my equity at a billion dollars. They're not generating any cash. So like what's the real value of that business? Either you're diluting and they're paying all of the cash they generate to buy the equity back to offset the dilution or they're building up a cash balance that just offsets the dilution. So like what's the point of believing that the cash flow is real in that case. So I think for me it's just distill businesses down to the simplest metric which is cash flow minus SBC.

Yeah, I mean ours is a higher percentage than that, but it depends on like if you think about percentage you say yours is.

You could if you just shoot off for a percentage of tokens consumed, you could get to a place where you're just creating slop. If you're incentivizing slop, like you're not going to get very far as a business. You're going to have massive fees to go pay the large language model businesses, but you're not going to get further as a business. What's important is are your engineers good enough to use these technologies to accelerate what creates value for the company? And can you measure that? And it's great to deploy an army of agents to go do my work for me, but if it's unclear what the deliverable is and it's unclear that that deliverable is aligned with actual growth in the business, then it's just waste. And so it's easy to say look percentage of code is high because truly if you set off the agents start writing code, they're going to contribute more code than humans. But is there value created? And so everything we do with lean team is try to go to value creation. And if you optimize to that, you get the most out of the agents without looking at the superficial metrics more so trying to distill it to was your investment in tokens covered by the amount of revenue that you created from the code contributed.

You have to understand the KPIs of the business that drive the business. And so ours our organization was built pretty nicely for this for the era that we're in. One, we don't have a product organization. Our engineers are meant to be product managers. And if you think about what's happening with AI native or engineers today, they have to be really imaginative. They have to be product people. They don't have to know how to write code, but they have to be able to audit code because frankly, you can't just go type out like what you need in a complex system and get a deliverable and it's done. They still need to be able to review the code and make sure what they're checking in is safe and high quality. But first and foremost, they need to know what the business needs and they need to know how to measure it. And so our business with a lean team and one where when you push a model improvement it is with certainty that it's easy to see it reflected in accuracy numbers in the model and also revenue growth in the business. The team knows what the KPIs are that they're optimizing to. And because they know that, they can then align with what an agent is going to or army of agents is going to do on their behalf and try to get to that point of get the most value out from the investment that we're making. I think it's very hard in a lot of businesses to understand exactly what are the KPIs that we're optimizing to. So they just go, let's just write a bunch of things and see what sticks. Then you're walking on a slippery slope. It's you may have so much cost ballooning from token usage that you don't actually get the type of revenue growth you need to cover it.

I mean, our business is pretty simple. So, I don't know that we ever optimized to something that turned out to be wrong because we've always optimized to the same thing. There are two things that drive our business. If the model is more accurately predictive, it's going to drive more revenue for the customer, the advertiser, then their media cost spent and everything is measurable in our system. And if that function holds true, revenue should grow as well alongside it. And so because everything is real time tracked and because we've always had a very consistent business model where we don't sell the belief that something worked, we sell the actual fact that something worked and we can measure everything. We ended up in a lucky spot where the business was built really well to be able to go utilize the types of technologies that we're seeing out there today.

Yeah. I mean look we're not an interface on top of large language models. There's usage of large language models in the company for productivity. There's some usage of large language models in our core business as well. But a recommendation system model is something that drives engagement. What you see on content on a social network. It's something that drives most advertising products in the world today. Facebook's ad system, TikTok's ad system, ours. And so, this is a space of machine learning that really hit its stride about a decade ago and I would say really accelerated with some of the research that we've seen come out of the large language model space lately. But it's a space where you can't just go defer to the large language model and say, 'Hey, based on what you know about this user and the data I have available, what's the next ad to see?' That wouldn't work as well as a custom model built for this purpose. In a world where you get to a place where you're in a category where you're utilizing the large language model or you're building an interface on top, you better build a moat really, really fast given how exceptionally talented companies like Anthropic are about releasing product on top of their own models.

I would be very very nervous if I was building a business as an interface on top of those companies.

Most people are on Claude Code. Codex is utilized as well and Cursor less so these days.

So it's tough to say. I mean again it's 400 people in the core business. We run lean. Is it going to be 800 on the core business? I highly doubt it. Is it going to be 50 on the core business? I'd love it, but I highly doubt it, too. So, I think we're sort of in a range of a good level for what we need for what we're doing today. Now, if some of the things that we'll take bets on over time work, we'll need more people around other businesses. But if we're just executing on our core business, it's very likely we don't need to go hire a whole lot more.

Yeah. So it's really interesting. So I'll broaden this out a little bit. One of my beliefs is that really good people figure out a way. They don't need a whole lot of mentorship. So if people on my team, if they directly report to me, I never do one-on-ones. I don't do reviews. If I don't like something they're doing, they know about it in real time via chat. If I like what they're doing, they don't need to know. They know that I respect them and they're good to go. Good people don't need that type of handholding usually. And what ends up happening is people who need a lot of development do, those people aren't the people that I want on this team of A players. And so we tend to shy away from a lot of traditional management techniques. Another example of this is like something like learning and development. A lot of companies try to structure all the onboarding and learning and development processes in a company to say you're new at my company. Here's how you should learn the business. Well, I remember in school I hated classes that were structured. I didn't learn anything. You couldn't retain it. I wanted to learn as I went. And my first couple jobs out of school, I came in and I was just curious and I figured stuff out. I've seen a pattern that our best people come in, they ask questions, they figure things out. And so we don't really have formal learning and development and it's completely disconnected from what you would expect at a company. But we don't want to structure people. We want to get really curious minds who come in who are loud enough to get what they need to get and who can learn. And now I'm going to tie it to the AI native world today. The benefit of not doing things in these one-on-one silos and very structured is you can document everything in Slacks or transcripted video calls. If you do that, any new person can come in and go, 'Hey, Claude, summarize for me what Adam cares about over the last quarter and write me a book of everything that matters to him and take the person who's running the best sales calls and summarize what he does or she does for those calls and tell me what I should know on this job.' And then like you start asking these types of questions, you start getting really good output because all of the information is available to Claude and you end up getting a person who can actually develop themselves through curiosity and output out of the models. And that is a much more capable future employee than someone who was just told here's what you need to know.

Yeah, I mean we're end of the day we're a sales business talking to advertisers. So I do believe there's a lot of value to building relationships in person. I think you do have a loss in ability to feed that information in the model and show other people what you're doing in those in person. So what we tend to do is believe the vast vast majority of communication needs to be written or through a video call. And when you need to build a relationship with key clients, you go in person and you take them out. And if you take them out in a social gathering, you can send notes into a chat around that client and have that as your history on the in-person meeting. But you can't replace in person. I think as human beings, as we go to this world where bots are going to do more for us, in person's even more valuable.